DuPont Fabros Technology, Inc. Reports First Quarter 2012 Results

DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands except share and per share data)

Three months ended March 31,

2012

2011

Revenues:

Base rent

$            53,170

$            47,188

Recoveries from tenants

24,086

20,858

Other revenues

1,126

453

Total revenues

78,382

68,499

Expenses:

Property operating costs

22,363

18,100

Real estate taxes and insurance

2,171

1,656

Depreciation and amortization

21,870

18,091

General and administrative

5,236

4,798

Other expenses

668

198

Total expenses

52,308

42,843

Operating income

26,074

25,656

Interest income

34

211

Interest:

Expense incurred

(11,863 )

(7,659 )

Amortization of deferred financing costs

(887 )

(624 )

Net income

13,358

17,584

Net income attributable to redeemable noncontrolling interests – operating partnership

(1,570 )

(3,472 )

Net income attributable to controlling interests

11,788

14,112

Preferred stock dividends

(6,619 )

(4,157 )

Net income attributable to common shares

$              5,169

$              9,955

Earnings per share – basic:

Net income attributable to common shares

$                0.08

$                0.15

Weighted average common shares outstanding

62,568,547

60,210,596

Earnings per share – diluted:

Net income attributable to common shares

$                0.08

$                0.15

Weighted average common shares outstanding

63,548,098

61,382,290

Dividends declared per common share

$                0.12

$                0.12

DUPONT FABROS TECHNOLOGY, INC.
RECONCILIATIONS OF NET INCOME TO FFO AND AFFO (1)
(unaudited and in thousands except share and per share data)

Three months ended March 31,

2012

2011

Net income

$            13,358

$            17,584

Depreciation and amortization

21,870

18,091

Less:  Non real estate depreciation and amortization     

(274 )

(203 )

FFO

34,954

35,472

Preferred stock dividends

(6,619 )

(4,157 )

FFO attributable to common shares and OP units

$            28,335

$            31,315

Straight-line revenues

(5,023 )

(11,868 )

Amortization of lease contracts above and below market value

(979 )

(536 )

Compensation paid with Company common shares

2,034

1,406

AFFO

$            24,367

$            20,317

FFO attributable to common shares and OP units per share - diluted

$                0.34

$                0.38

AFFO per share - diluted

$                0.30

$                0.25

Weighted average common shares and OP units outstanding - diluted

82,553,495

82,383,011

(1)

Funds from operations, or FFO, is used by industry analysts and investors as a supplemental operating performance measure for REITs. The Company calculates FFO in accordance with the definition that was adopted by the Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT. FFO, as defined by NAREIT, represents net income determined in accordance with GAAP, excluding extraordinary items as defined under GAAP, impairment charges on depreciable real estate assets and gains or losses from sales of previously depreciated operating real estate assets, plus specified non-cash items, such as real estate asset depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. The Company also presents FFO attributable to common shares and OP units, which is FFO excluding preferred stock dividends. FFO attributable to common shares and OP units per share is calculated on a basis consistent with net income attributable to common shares and OP units and reflects adjustments to net income for preferred stock dividends.

The Company uses FFO as a supplemental performance measure because, in excluding real estate related depreciation and amortization and gains and losses from property dispositions, it provides a performance measure that, when compared period over period, captures trends in occupancy rates, rental rates and operating expenses. The Company also believes that, as a widely recognized measure of the performance of equity REITs, FFO may be used by investors as a basis to compare the Company's operating performance with that of other REITs. However, because FFO excludes real estate related depreciation and amortization and captures neither the changes in the value of the Company's properties that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of the Company's properties, all of which have real economic effects and could materially impact the Company's results from operations, the utility of FFO as a measure of the Company's performance is limited.

While FFO is a relevant and widely used measure of operating performance of equity REITs, other equity REITs may use different methodologies for calculating FFO and, accordingly, FFO as disclosed by such other REITs may not be comparable to the Company's FFO. Therefore, the Company believes that in order to facilitate a clear understanding of its historical operating results, FFO should be examined in conjunction with net income as presented in the consolidated statements of operations. FFO should not be considered as an alternative to net income or to cash flow from operating activities (each as computed in accordance with GAAP) or as an indicator of the Company's liquidity, nor is it indicative of funds available to meet the Company's cash needs, including its ability to pay dividends or make distributions.

The Company also presents FFO with supplemental adjustments to arrive at Adjusted FFO ("AFFO"). AFFO is FFO attributable to common shares and OP units excluding straight-line revenue, non-cash stock based compensation, gain or loss on derivative instruments, acquisition of service agreements, below market lease amortization net of above market lease amortization and early extinguishment of debt costs.  AFFO does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of the Company's operating performance or as an alternative to cash flow provided by operations as a measure of liquidity and is not necessarily indicative of funds available to fund the Company's cash needs including the Company's ability to pay dividends. In addition, AFFO may not be comparable to similarly titled measurements employed by other companies. The Company's management uses AFFO in management reports to provide a measure of REIT operating performance that can be compared to other companies using AFFO.

DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)

March 31,
2012

December 31,
2011

(unaudited)

ASSETS

Income producing property:

Land

$         73,197

$         63,393

Buildings and improvements

2,309,961

2,123,377

2,383,158

2,186,770

Less: accumulated depreciation

(262,654 )

(242,245 )

Net income producing property

2,120,504

1,944,525

Construction in progress and land held for development

142,802

320,611

Net real estate

2,263,306

2,265,136

Cash and cash equivalents

55,198

14,402

Restricted cash

19

174

Rents and other receivables

4,517

1,388

Deferred rent

131,885

126,862

Lease contracts above market value, net

11,080

11,352

Deferred costs, net

40,487

40,349

Prepaid expenses and other assets

27,019

31,708

Total assets

$    2,533,511

$    2,491,371

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

Line of credit

$                  —

$         20,000

Mortgage notes payable

143,500

144,800

Unsecured notes payable

550,000

550,000

Accounts payable and accrued liabilities

23,682

22,955

Construction costs payable

7,299

20,300

Accrued interest payable

14,186

2,528

Dividend and distribution payable

15,600

14,543

Lease contracts below market value, net

17,062

18,313

Prepaid rents and other liabilities

33,602

29,058

Total liabilities

804,931

822,497

Redeemable noncontrolling interests—operating partnership

463,740

461,739

Commitments and contingencies

—

—

Stockholders' equity:

Preferred stock, $.001 par value, 50,000,000 shares authorized:

Series A cumulative redeemable perpetual preferred stock, 7,400,000 issued and
                         outstanding at March 31, 2012 and December 31, 2011

185,000

185,000

Series B cumulative redeemable perpetual preferred stock, 6,650,000 issued and
                         outstanding at March 31, 2012 and 4,050,000 shares issued and outstanding at
                         December 31, 2011

166,250

101,250

Common stock, $.001 par value, 250,000,000 shares authorized, 63,098,510 shares issued 
               and outstanding at March 31, 2012 and 62,914,987 shares issued and outstanding at December 31, 2011

63

63

Additional paid in capital

915,438

927,902

Accumulated deficit

(1,911 )

(7,080 )

Total stockholders' equity

1,264,840

1,207,135

Total liabilities and stockholders' equity

$    2,533,511

$    2,491,371

DUPONT FABROS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)

Three months ended March 31,

2012

2011

Cash flow from operating activities

Net income

$      13,358

$      17,584

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization

21,870

18,091

Straight line rent

(5,023)

(11,868)

Amortization of deferred financing costs

887

624

Amortization of lease contracts above and below market value

(979)

(536)

Compensation paid with Company common shares

2,034

1,406

Changes in operating assets and liabilities

Restricted cash

155

223

Rents and other receivables

(3,129)

(95)

Deferred costs

(175)

(1,300)

Prepaid expenses and other assets

(3,329)

(495)

Accounts payable and accrued liabilities

727

(1,524)

Accrued interest payable

11,658

11,681

Prepaid rents and other liabilities

2,139

(406)

Net cash provided by operating activities

40,193

33,385

Cash flow from investing activities

Investments in real estate – development

(22,410)

(110,589)

Interest capitalized for real estate under development

(1,155)

(6,254)

Improvements to real estate

(179)

(437)

Additions to non-real estate property

(54)

(63)

Net cash used in investing activities

(23,798)

(117,343)

Cash flow from financing activities

Issuance of preferred stock, net of offering costs

62,696

97,482

Line of credit:

Proceeds

15,000

—

Repayments

(35,000)

—

Mortgage notes payable:

Repayments

(1,300)

(1,300)

Return of escrowed proceeds

—

1,104

Exercises of stock options

429

129

Payments of financing costs

(2,015)

(155)

Dividends and distributions:

Common shares

(7,550)

(7,179)

Preferred shares

(5,572)

(3,723)

Redeemable noncontrolling interests – operating partnership

(2,287)

(2,634)

Net cash provided by financing activities

24,401

83,724

Net increase (decrease) in cash and cash equivalents

40,796

(234)

Cash and cash equivalents, beginning

14,402

226,950

Cash and cash equivalents, ending

$      55,198

$    226,716

Supplemental information:

Cash paid for interest

$        1,361

$        2,233

Deferred financing costs capitalized for real estate under development

$              76

$            295

Construction costs payable capitalized for real estate under development

$        7,299

$      48,027

Redemption of OP units for common shares

$        2,400

$      21,500

Adjustments to redeemable noncontrolling interests

$        5,107

$      60,376

DUPONT FABROS TECHNOLOGY, INC.

Operating Properties
As of March 31, 2012

 Property

Property Location

Year Built/
Renovated

Gross
Building
Area
(2)

Raised
Square
Feet
(3)

Critical
Load
MW
(4)

%
Leased
(5)

%

Commenced
(5)

Stabilized (1)

ACC2

Ashburn, VA

    2001/2005

87,000

53,000

10.4

100%

100%

ACC3

Ashburn, VA

    2001/2006

147,000

80,000

13.9

100%

100%

ACC4

Ashburn, VA

2007

347,000

172,000

36.4

100%

100%

ACC5

Ashburn, VA

    2009-2010

360,000

176,000

36.4

100%

100%

CH1 Phase I

Elk Grove Village, IL

2008

285,000

122,000

18.2

98%

98%

VA3

Reston, VA

2003

256,000

147,000

13.0

100%

100%

VA4

Bristow, VA

2005

230,000

90,000

9.6

100%

100%

Subtotal— stabilized

1,712,000

840,000

137.9

99%

99%

Completed not Stabilized 

NJ1 Phase I 

Piscataway, NJ

2010

180,000

88,000

18.2

36%

36%

ACC6 Phase I (6)

Ashburn, VA

2011

131,000

66,000

13.0

8%

8%

SC1 Phase I

Santa Clara, CA

2011

180,000

88,000

18.2

38%

38%

CH1 Phase II

Elk Grove Village, IL

2012

200,000

109,000

18.2

79%

57%

Subtotal— non-stabilized

691,000

351,000

67.6

43%

37%

Total Operating Properties

2,403,000

1,191,000

205.5

81%

79%

(1)

Stabilized operating properties are either 85% or more leased or have been in service for 24 months or greater.

(2)

Gross building area is the entire building area, including raised square footage (the portion of gross building area where the tenants' computer servers are located), tenant common areas, areas controlled by the Company (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to the tenants.

(3)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(4)

Critical load (also referred to as IT load or load used by tenants' servers or related equipment) is the power available for exclusive use by tenants expressed in terms of megawatt, or MW, or kilowatt, or kW (1 MW is equal to 1,000 kW).

(5)

Percentage leased is expressed as a percentage of critical load that is subject to an executed lease. Percentage commenced is expressed as a percentage of critical load where the lease has commenced under generally accepted accounting principles. Leases executed as of March 31, 2012 represent $213 million of base rent on a straight-line basis and $202 million on a cash basis over the next twelve months.

(6)

As of April 26, 2012, ACC6 Phase I is 83% leased and 75% commenced.

DUPONT FABROS TECHNOLOGY, INC.

Lease Expirations
As of March 31, 2012

The following table sets forth a summary schedule of lease expirations of the operating properties for each of the ten calendar years beginning with 2012. The information set forth in the table below assumes that tenants exercise no renewal options and takes into account tenants' early termination options.

 Year of Lease Expiration

Number
of Leases
Expiring (1)

Raised
Square Feet
Expiring
(in thousands) (2)

% of Leased
Raised
Square Feet

Total kW
of Expiring
Leases (3)

% of
Leased kW

% of
Annualized
Base Rent

2012(4)

2

72

7.3%

6,878

4.1%

3.6%

2013

2

30

3.0%

3,030

1.8%

0.9%

2014

6

35

3.5%

6,287

3.8%

3.8%

2015

6

84

8.5%

16,250

9.8%

8.9%

2016

5

71

7.2%

11,640

7.0%

6.9%

2017

11

104

10.5%

19,195

11.5%

11.6%

2018

8

111

11.2%

22,702

13.7%

13.7%

2019

10

124

12.6%

22,367

13.5%

12.9%

2020

8

82

8.3%

13,895

8.4%

9.0%

2021

7

130

13.2%

21,669

13.0%

14.4%

After 2021

12

145

14.7%

22,302

13.4%

14.3%

Total

77

988

100%

166,215

100%

100%

(1)

Represents 33 tenants with 77 lease expiration dates, including three leases that have not yet commenced for one existing tenant. Top three tenants represent 47% of annualized base rent as of March 31, 2012, excluding one tenant's lease that expires on April 30, 2012.

(2)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)

One MW is equal to 1,000 kW.

(4)

One lease will expire on April 30, 2012, representing 67,000 raised square feet, 6.7% of leased raised square feet, 5,740 kW of critical load and 2.8% of annualized base rent as of March 31, 2012. The second lease has an option to terminate on six months notice.

DUPONT FABROS TECHNOLOGY, INC.
Development Projects
As of March 31, 2012
($ in thousands)

Property

Property Location

Gross
Building
Area (1)

Raised
Square
Feet (2)

Critical
Load
MW (3)

Construction
in Progress &
Land Held for
Development (4)

Future Development Projects/Phases

SC1 Phase II

Santa Clara, CA

180,000

88,000

18.2

$         61,621

NJ1 Phase II

Piscataway, NJ

180,000

88,000

18.2

39,212

ACC6 Phase II (5)

Ashburn, VA

131,000

66,000

13.0

26,169

491,000

242,000

49.4

127,002

Land Held for Development

ACC7 Phase I /II

Ashburn, VA

360,000

176,000

36.4

10,052

ACC8

Ashburn, VA

100,000

50,000

10.4

3,693

SC2 Phase I/II

Santa Clara, CA

300,000

171,000

36.4

2,055

760,000

397,000

83.2

15,800

Total

1,251,000

639,000

132.6

$      142,802

(1)

Gross building area is the entire building area, including raised square footage (the portion of gross building area where the tenants' computer servers are located), tenant common areas, areas controlled by the Company (such as the mechanical, telecommunications and utility rooms) and, in some facilities, individual office and storage space leased on an as available basis to the tenants.

(2)

Raised square footage is that portion of gross building area where the tenants locate their computer servers. The Company considers raised square footage to be the net rentable square footage in each of its facilities.

(3)

Critical load (also referred to as IT load or load used by tenants' servers or related equipment) is the power available for exclusive use by tenants expressed in terms of MW or kW (1 MW is equal to 1,000 kW).

(4)

Amount capitalized as of March 31, 2012. Future Phase II development projects include only land, shell, underground work and capitalized interest through Phase I opening.

(5)

As of April 26, 2012, ACC6 Phase II is 67% pre-leased and in development. Estimated total costs to build is $120 million.

DUPONT FABROS TECHNOLOGY, INC.

Debt Summary as of March 31, 2012
($ in thousands)

Amounts

% of Total

Rates (1)

Maturities
(years)

Secured

$        143,500

21 %

3.2 %

2.7

Unsecured

550,000

79 %

8.5 %

5.0

Total

$        693,500

100 %

7.4 %

4.5

Fixed Rate Debt:

Unsecured Notes

$        550,000

79 %

8.5 %

5.0

Fixed Rate Debt

550,000

79 %

8.5 %

5.0

Floating Rate Debt:

Unsecured Credit Facility (2)

—

—

—

4.0

ACC5 Term Loan

143,500

21 %

3.2 %

2.7

Floating Rate Debt

143,500

21 %

3.2 %

2.7

Total

$        693,500

100 %

7.4 %

4.5

Note: The Company capitalized interest and deferred financing cost amortization of $1.2 million during the three months ended March 31, 2012.

(1)

Rates as of March 31, 2012.

(2)

The Unsecured Credit Facility was amended in March 2012, decreasing the interest rate to LIBOR plus 1.85%, increasing the commitment to $225.0 million and extending the maturity date to March 2016 with a one-year extension option.

Debt Maturity as of March 31, 2012
($ in thousands)

Year

Fixed Rate

Floating Rate

Total

% of Total

Rates (4)

2012

—

3,900(2)

3,900

0.6 %

3.2 %

2013

—

5,200(2)

5,200

0.7 %

3.2 %

2014

—

134,400(2)

134,400

19.4 %

3.2 %

2015

125,000 (1)

—

125,000

18.0 %

8.5 %

2016

125,000 (1)

          — (3)  

125,000

18.0 %

8.5 %

2017

300,000 (1)

—

300,000

43.3 %

8.5 %

Total

$    550,000

$143,500

$    693,500

100 %

7.4 %

(1)

The Unsecured Notes have mandatory amortizations of $125.0 million due in 2015, $125.0 million due in 2016 and $300.0 million due in 2017.

(2)

The ACC5 Term Loan matures on December 2, 2014 with no extension option and requires quarterly principal payments of $1.3 million through maturity.

(3)

The Unsecured Credit Facility was amended in March 2012, decreasing the interest rate to LIBOR plus 1.85%, increasing the commitment to $225.0 million and extending the maturity date to March 2016 with a one-year extension option.

(4)

Rates as of March 31, 2012.

DUPONT FABROS TECHNOLOGY, INC.

Selected Unsecured Debt Metrics

    3/31/12

    12/31/11

Interest Coverage Ratio (not less than 2.0)

3.6

3.5

Total Debt to Gross Asset Value (not to exceed 60%)

24.9%

26.3%

Secured Debt to Total Assets (not to exceed 40%)

5.2%

5.3%

Total Unsecured Assets to Unsecured Debt (not less than 150%)

343.9%

329.5%

These selected metrics relate to DuPont Fabros Technology, LP's outstanding unsecured debt. DuPont Fabros Technology, Inc. is the general partner of DuPont Fabros Technology, LP.

Capital Structure as of March 31, 2012
(in thousands except per share data)

Mortgage Notes Payable

$       143,500

Unsecured Notes

550,000

Total Debt

693,500

22.7 %

Common Shares

77 %

63,098

Operating Partnership ("OP") Units

23 %

18,967

Total Shares and Units

100 %

82,065

Common Share Price at March 31, 2012 

$     24.45

Common Share and OP Unit Capitalization

$     2,006,489

Preferred Stock ($25 per share liquidation preference)

351,250

Total Equity

2,357,739

77.3 %

Total Market Capitalization 

$     3,051,239

100.0 %

DUPONT FABROS TECHNOLOGY, INC.

Common Share and OP Unit
Weighted Average Amounts Outstanding

Q1 2012

Q1 2011

Weighted Average Amounts

Outstanding for EPS Purposes:

Common Shares – basic

62,568,547

60,210,596

Shares issued from assumed conversion of:

- Restricted Shares

206,609

335,378

- Stock Options

772,942

836,316

Total Common Shares - diluted

63,548,098

61,382,290

Weighted Average Amounts Outstanding 
  for FFO and AFFO Purposes:

Common Shares – basic

62,568,547

60,210,596

OP Units – basic

19,005,397

21,000,721

Total Common Shares and OP Units

81,573,944

81,211,317

Shares and OP Units issued from

    assumed conversion of:

- Restricted Shares

206,609

335,378

- Stock Options

772,942

836,316

Total Common Shares and Units - diluted

82,553,495

82,383,011

Period Ending Amounts Outstanding:

Common Shares

63,098,510

OP Units

18,966,881

Total Common Shares and Units

82,065,391

DUPONT FABROS TECHNOLOGY, INC.

2012 Guidance as of April 26, 2012

The earnings guidance/projections provided below are based on current expectations and are forward-looking.

Expected Q2 2012
per share

Expected 2012
per share

Net income per common share and unit – diluted

   $0.08 to $0.10

  $0.37 to $0.46

Depreciation and amortization, net

0.27

    1.07 to   1.08

FFO per share – diluted (1)

   $0.35 to $0.37

  $1.44 to $1.54

2012 Debt Assumptions

Weighted average debt outstanding

        $692.5 million

Weighted average interest rate

7.58%

Total interest costs

         $52.5 million

Amortization of deferred financing costs

            3.7 million

      Interest expense capitalized

          (3.5) million

      Deferred financing costs amortization capitalized

          (0.2) million

Total interest expense after capitalization

         $52.5 million

2012 Other Guidance Assumptions

Total revenues

         $320 to $340 million

Base rent (included in total revenues)

          $220 to $230 million

Straight-line revenues (included in base rent)

         $18 to $25 million

General and administrative expense

         $18 million

Investments in real estate – development (2)

         $100 million

Improvements to real estate excluding development

         $4 million

Preferred stock dividends

        $27 million

Annualized common stock dividend

           $0.60 per share

Weighted average common shares and OP units - diluted

           83 million

(1)

For information regarding FFO, see "Reconciliations of Net Income to FFO and AFFO" above.

(2)

Includes CH1 Phase II completion costs and $65 million of 2012 cash to build ACC6 Phase II.